In this piece, we will take a look at ten biotechnology stocks to buy according to billionaire DE Shaw.
David Elliot Shaw, commonly known as D.E. Shaw, is an American billionaire hedge fund investor. He is the founder of the hedge fund D.E. Shaw which is based out of New York. The fund takes after its founder, being known for its analytical and research-based approach to investing.
Dr. Shaw is one of the few hedge fund executives out there that has a doctorate degree. As opposed to numerous other hedge fund founders and owners, who primarily started their careers in the investment and financial world, Dr. Shaw started out in a completely different industry. The hedge fund executive received his Ph.D. from the illustrious Stanford University in 1980, following which he would take a role as an assistant professor at Columbia University. At Columbia, he would conduct research in computer science.
Dr. Shaw’s investment career started in 1986 when he joined the famed investment bank, Morgan Stanley. At the bank, he was responsible for Morgan Stanley’s proprietary trading group, which involves using a bank’s own money for investments, as opposed to outside investors’ funds.
Just two years after joining one of the largest banks in the world, Dr. Shaw would set up D.E. Shaw and the rest is history. According to Forbes Magazine, Dr. Shaw was worth a cool $7.5 billion as of March 2022, making him one of the richest people in the world.
His hedge fund was set up on the top of a New York bookstore after Dr. Shaw secured $28 million in investment funds from a set of institutional and private investors. As opposed to having a background in finance, most of its early team was comprised of researchers and scientists, and the hedge fund placed specific emphasis on secrecy and the need to protect its secret sauce of algorithms.
The diversified employee approach is present at D.E. Shaw to this day, while Dr. Shaw has taken on a more research-oriented role at his firm, heading D.E. Shaw’s computational biology research group. That research group is responsible for conducting research on molecules, and it also develops technologies for supercomputers, which were Dr. Shaw’s favorite areas of interest during his academic years.
D.E. Shaw’s success over the decades is evident in the size of its portfolio. After having started out with $28 million in capital as mentioned above, the hedge fund now has a 13F portfolio worth $120 billion as of the close of last year. In this piece, we will focus on D.E. Shaw’s investments in the biotechnology sector, with the largest being in Moderna, Inc. (NASDAQ:MRNA) and Pfizer Inc. (NYSE:PFE). Another renowned company in the hedge fund’s portfolio is The Coca-Cola Company (NYSE:KO).
David E. Shaw of D.E. Shaw
Our Methodology
In order to root out Dr. Shaw’s hedge fund’s top biotechnology investments, we sifted through D.E. Shaw’s filings with the Securities and Exchange Commission for the fourth quarter of last year. After the companies were pinpointed, we studied them extensively through investor letters, earnings reports, analyst ratings, large shareholdings, and overall hedge fund sentiment gathered through Insider Monkey’s database of 924 hedge funds that filed 13Fs for Q4 2021.
10 Biotech Stocks to Buy According to Billionaire David E. Shaw
10. Eli Lilly and Company (NYSE:LLY)
D.E. Shaw’s Stake Value: $106 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.06%
Number of Hedge Fund Holders: 63
Eli Lilly and Company (NYSE:LLY) is one of the oldest pharmaceutical firms in the world, as it was founded in 1876. The company is headquartered in New Jersey and develops several different kinds of drugs including those for cancer, arthritis, and diabetes. The company also has a biopharmaceutical plant in Cork, Ireland.
Dr. Shaw’s investment firm owned 384,012 Eli Lilly and Company shares by the end of the fourth quarter of last year for a $106 million stake which represented 0.06% of the value of the firm’s 13F investment portfolio. During the same time period, 63 hedge funds tracked by Insider Monkey owned a stake in the company. Eli Lilly and Company’s largest investor in our database is Ken Fisher’s Fisher Asset Management which owns 6.9 million shares worth $1.9 billion.
Eli Lilly and Company earned $8 billion in revenue and $2.49 in non-GAAP EPS for its fiscal fourth quarter, beating analyst estimates for revenue but missing them for EPS. BofA raised its price target on LLY shares to $315 from $300 in March 2022, stating that the company’s weight loss drug is underrated amongst Wall Street analysts.
Saturna Capital mentioned the company in its fourth quarter 2021 investor letter and outlined that:
“Industrials and pharmaceutical companies were among the Amana Income Fund’s strongest performers in the fourth quarter. Industrials and pharmaceutical companies were among the Amana Income Fund’s strongest performers in the fourth quarter. Drug maker Eli Lilly is represented in the 10 Largest Contributors.”
Along with The Coca-Cola Company, Moderna, Inc., and Pfizer Inc., Eli Lilly and Company is a stock on D.E. Shaw’s radar.
9. Baxter International Inc. (NYSE:BAX)
D.E. Shaw’s Stake Value: $136 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.11%
Number of Hedge Fund Holders: 44
Baxter International Inc. (NYSE:BAX) is an American healthcare firm that provides a host of products globally. These include dialysis services, critical care products, nutritional services, and biological products for use in surgeries. Additionally, it also offers contracted services to biopharmaceutical firms.
After its fiscal Q4 came to an end, Baxter International Inc. reported $3.5 billion in revenue and $1.04 in non-GAAP EPS for the period, a strong set of results that saw it beat analyst estimates for both. UBS raised its price target on the stock to $91 from $88 in February 2022, outlining that the strong quarterly results coupled with an expected improvement in its supply backlog will bode well for the company.
D.E. Shaw held 1.58 million Baxter International Inc. shares at the end of Q4 2021, for a $136 million stake. 44 hedge funds tracked by Insider Monkey had long positions in the firm as of December 31. David Blood and Al Gore’s Generation Investment Management is Baxter International Inc.’s largest shareholder among that group, owning 21 million shares worth $1.8 billion.
Cooper Investors mentioned the company in its third quarter 2021 investor letter, stating that:
“During the quarter we exited our position in Baxter, having originally bought in 2017 as a Low Risk Turnaround with clear Stalwart attributes. In essence, the core businesses were highly durable, providing life sustaining or saving medical products such as IV medication or pumps and dialysis machines.
They had been mismanaged prior to the company spinning off its biopharmaceutical business in 2015 which had generated most of the Baxter’s operating profit. With a new CEO in Joe Almeida, who came with a successful track record leading another medical device company (Covidien) we identified three sources of value latency for the new standalone Baxter.
Firstly, optimising the cost structure. Baxter were successful here – they were able to effectively double operating margins from low single digits to mid-to-high teens over a relatively short four-year period. Secondly, accelerating sales growth through a more focused R&D effort. This is inherently more difficult than cost optimisation and on this front success has been muted with only moderate impact to revenues from new product introductions. Finally, capital deployment through Baxter’s significantly under-levered balance sheet. Several smaller bolt-on acquisitions were nicely complementary to the existing portfolio, but in early September the company announced the acquisition of Hil-Rom Holdings, a medical device company with leading positions in bed systems and patient monitoring. The deal is significant at US$12.5bn in size, and exhausts all balance sheet latency in one fell swoop.
8. Biogen Inc. (NASDAQ:BIIB)
D.E. Shaw’s Stake Value: $143 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.11%
Number of Hedge Fund Holders: 64
Biogen Inc. (NASDAQ:BIIB) is a company that focuses on treatments for neurological and neurodegenerative diseases such as muscular atrophy, multiple sclerosis, Alzheimer’s disease, arthritis, and lymphoma, among others. It describes itself as one of the first biotechnology companies in the world after being founded in 1978.
As of the end of last year, D.E. Shaw’s stake in Biogen Inc. was worth $143 million. It came via the firm owning 596,961 shares. Biogen Inc.’s largest investor that is tracked by our database is Jim Simons’ Renaissance Technologies, which owns 1.07 million shares worth $258 million.
Biogen Inc. posted $2.74 billion in revenue and $3.39 in non-GAAP EPS for its fiscal Q4, beating analyst estimates for both. BofA reduced its share price target on BIIB to $225 from $230 in March 2022, outlining that the company’s Alzheimer’s drug developed with another firm could potentially result in a negative net present value.
Longleaf Partners Fund mentioned the company in its fourth quarter 2021 investor letter. Here is what the firm said:
“Biogen (83%, 2.43%; 5%, 0.10%), a biotechnology company specializing in therapies for the treatment of neurological diseases, was a strong contributor before we exited the position in the first half. We began acquiring shares in January 2021, paying between 9- 11x FCF and a discount to our appraisal, even if the company’s promising drug pipeline turned out to be worth 0. After Biogen’s Alzheimer drug Aduhelm was approved in June, we quickly sold out after the stock’s price appreciated over 70% and briefly exceeded our appraisal of the value. We re-initiated a position in Biogen in December at a price below our original cost basis from January. The stock became very cheap once again after Aduhelm’s early sales disappointed due to its high initial cost before management correctly cut the price. We think Biogen’s core Multiple sclerosis (MS) and Biosimilars businesses are strong enough to create sustainable double-digit EPS growth, even if Aduhelm and the entire Alzheimer’s program is worth zero. We also expect a board led by large shareholders to continue the company’s accretive repurchase, while considering other beneficial corporate actions.”
7. Novartis AG (NYSE:NVS)
D.E. Shaw’s Stake Value: $159 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.13%
Number of Hedge Fund Holders: 27
Novartis AG (NYSE:NVS) is a Swiss healthcare company that provides medicines and materials used in medicine production. The company’s Global Biotech division offers contract manufacturing services to third parties for manufacturing biotechnological products using stringent standards.
For its fiscal fourth quarter, Novartis AG posted $13.3 billion in revenue and $1.40 in non-GAAP EPS, an underwhelming set of results that saw it miss Wall Street analyst estimates for both metrics. Stifel set a CHF87 price target ($93.98) for the company in February 2022, as it shared its belief that the company’s share price has performed far worse than its operations have.
Dr. Shaw’s investment firm owned 1.82 million Novartis AG shares at the end of Q4 2021, for a $159 million stake which represented 0.13% of its investment portfolio’s value. 27 hedge funds tracked by Insider Monkey owned the company’s shares, with Ken Fisher’s Fisher Asset Management being Novartis AG’s largest investor, holding 10.4 million shares worth $908 million.
6. Johnson & Johnson (NYSE:JNJ)
D.E. Shaw’s Stake Value: $177 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.14%
Number of Hedge Fund Holders: 85
Johnson & Johnson is an American healthcare firm that was founded in 1886 and is based out of New Brunswick, New Jersey. It sells consumer healthcare products, different kinds of pharmaceutical products, and medical devices. Additionally, the company has taken a keen interest in the biotechnology sector by incubating startups – a fact that was recognized by Fast Company in 2017.
D.E. Shaw held a $177 million stake in Johnson & Johnson at the end of the fourth quarter of last year, owning 1.04 million shares. Of the 924 hedge funds tracked by Insider Monkey’s database which filed 13Fs for the Q4 period, 85 of them owned the company’s shares. Johnson & Johnson largest investor among them was Terry Smith’s Fundsmith LLP, which owned 7.22 million shares worth $1.23 billion.
Johnson & Johnson reported $24.8 billion in revenue and $2.13 in non-GAAP EPS for its fiscal fourth quarter, in a mixed bag of results that beat analysts’ EPS estimates but missed them for revenue. Bernstein raised its price target on JNJ shares to $183 from $180 in March 2022, stating that the company’s pharmaceutical business is headed for some dark times.
Moderna, Inc., The Coca-Cola Company, and Pfizer Inc. are joined by Johnson & Johnson in Dr. Shaw’s list of hot stocks.
5. Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)
D.E. Shaw’s Stake Value: $184 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.15%
Number of Hedge Fund Holders: 43
Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is a biotechnology company that develops medicines for a host of diseases. These include macular degeneration, edema, diabetic retinopathy, dermatitis, and cancer. It is headquartered in Tarrytown, New York, and was founded in 1988.
Dr. Shaw’s investment firm owned 292,871 Regeneron Pharmaceuticals, Inc. shares at the end of the fourth quarter of last year. These were worth $184 million and represented 0.15% of its 13F investment portfolio’s value. During the same time period, 43 hedge funds tracked by Insider Monkey also held the company’s shares. Regeneron Pharmaceuticals, Inc.’s largest shareholder among that group was Natixis Global Asset Management’s Harris Associates, which owned 1.3 million shares worth $834 million.
Regeneron Pharmaceuticals, Inc. beat analyst estimates for revenue and non-GAAP EPS during its fiscal Q4, by posting $4.95 billion and $23.72, respectively. Truist lowered its price target on the company’s shares to $728 from $754 in February 2022, outlining lowered sales and headwinds for several of its products.
4. Incyte Corporation (NASDAQ:INCY)
D.E. Shaw’s Stake Value: $188 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.15%
Number of Hedge Fund Holders: 40
Incyte Corporation (NASDAQ:INCY) is a biotechnology firm headquartered in Wilmington, Delaware. It develops proprietary therapeutics technologies for a variety of diseases, including treatments for cancer and leukemia.
For its fiscal fourth quarter, Incyte Corporation earned revenue of $862 million and EPS of $0.10. RBC Capital increased its price target on INCY shares to $90 from $78 in January 2022, stating that the company has a strong core portfolio of treatments and impressive sales expectations for some of its drugs.
D.E. Shaw held a $188 million stake in Incyte Corporation at the close of last year’s fourth quarter, owning 2.56 million shares. The stake represented 0.15% of the value of its 13F investment portfolio. Julian Baker and Felix Baker’s Baker Bros. Advisors was Incyte Corporation’s largest investor tracked by our database, owning a $2.47 billion stake that consisted of 33.6 million shares.
3. Pfizer Inc. (NYSE:PFE)
D.E. Shaw’s Stake Value: $196 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.16%
Number of Hedge Fund Holders: 85
Pfizer Inc. is an American pharmaceutical and biotechnology firm that is headquartered in New York. Its treatments and products cover diseases related to cardiovascular health, various infections such as COVID-19, inflammatory diseases, and endocrine diseases.
At the end of the fourth quarter of last year, Dr. Shaw’s investment firm owned 3.32 million Pfizer Inc. shares that were worth $196 million and represented 0.16% of its 13F investment portfolio’s value. At the same time, 85 hedge funds tracked by Insider Monkey held stakes in the company. Pfizer Inc.’s largest investor among those 85 funds was Philippe Laffont’s Coatue Management, which owned 10.3 million shares worth $609 million.
Pfizer Inc. reported $23.84 billion in revenue and $1.08 in non-GAAP EPS for its fiscal Q4, beating analysts’ EPS estimates but missing them for revenue. In a major development last month, the United States Food and Drug Administration (FDA) approved a second booster dose of the company’s coronavirus vaccine for older adults.
2. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)
D.E. Shaw’s Stake Value: $224 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.18%
Number of Hedge Fund Holders: 62
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a biotechnology firm headquartered in Boston, Massachusetts. It focuses on developing treatments for cystic fibrosis, kidney diseases, diabetes, and musculoskeletal pain.
D.E. Shaw owned 1.02 million Vertex Pharmaceuticals Incorporated shares at the end of Q4 2021. These were worth $224 million on December 31 and represented 0.18% of the fund’s 13F investment portfolio value. Jim Simons’ Renaissance Technologies was Vertex Pharmaceuticals Incorporated’s largest investor tracked by our database, owning a $357 million stake of 1.63 million shares.
Vertex Pharmaceuticals Incorporated brought in $2 billion in revenue and $3.37 in non-GAAP EPS for its Q4, a strong set of results that beat Wall Street estimates on both counts. Jefferies maintained a $275 price target for the company in March 2022, as it stated that its high growth, high margin business is nothing short of stellar.
Tweedy, Browne Company LLC mentioned Vertex in its fourth quarter 2021 investor letter. Here is what the fund said:
“Portfolio activity during the quarter was relatively modest, and mostly on the sell side, taking advantage of the market’s advance to trim or sell positions that were trading at or above our estimates of their underlying intrinsic values. In terms of newly established positions, there were only two, (including) Vertex Pharmaceutical, a US-based pharma company specializing in therapies for cystic fibrosis (Value Fund). Both of these companies at purchase were trading at substantial discounts from our estimates of their underlying intrinsic values, and, in our view, are financially strong and well positioned for future growth.
Vertex Pharmaceutical, which was purchased by the Tweedy, Browne Value Fund in mid-November 2021, is a biotechnology company that specializes in rare diseases/orphan drugs. The company’s current strength is in the treatment of cystic fibrosis, where its therapies are the gold standard of care globally. Analysts expect that Vertex will be able to maintain its dominant position in the treatment of this disease, which afflicts 83,000 people worldwide, largely due to the effectiveness of its therapies, the fact that patent expirations for its drugs are a long way off into the future (2030-2037), and the lack of effective competition. This affords Vertex pricing power for its drugs, as there are currently no good alternative therapies. Assuming the company receives complete international and pediatric approvals, Vertex’s portfolio of approved drugs would be eligible to treat 90% of the people who have this disease. Vertex’s therapies are also not one and done drugs, but rather start in early childhood and continue throughout the patient’s lifetime. The company’s strong cash flow, in our view, should support the company’s development of even better next generation drugs to treat cystic fibrosis as well as diversify its drug pipeline to treat other rare diseases. However, many of these treatments are on the horizon or are in their incipient stages of development.”
1. Moderna, Inc. (NASDAQ:MRNA)
D.E. Shaw’s Stake Value: $257 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.21%
Number of Hedge Fund Holders: 45
Moderna, Inc. is a biotechnology firm that uses messenger ribonucleic acid (mRNA) for developing treatments for several diseases. These include infectious diseases, various cancers, cardiovascular diseases, and other maladies. The company rose to mainstream prominence thanks to its vaccine for the coronavirus pandemic, which is rated among the best in the world.
Moderna, Inc.’s fiscal Q4 results saw it beat analysts’ revenue and GAAP EPS estimates, as the company posted $7.2 billion in revenue and $11.29 in GAAP EPS respectively. At the same time, the company announced a $3 billion share buyback as an incentive to investors who were worried about its share price.
Dr. Shaw’s D.E. Shaw had amassed a $257 million stake in Moderna, Inc. by the end of Q4 2021, holding 1.01 million shares of the drug company. 45 hedge funds tracked by Insider Monkey’s database owned the company’s shares on December 31. Moderna, Inc.’s largest investor among that group was Patrick Degorce’s Theleme Partners, which owned 5.02 million shares worth $1.28 billion.
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This article is originally published at Insider Monkey.
